Government may drop T-cess clause in draft Companies Law

NEW DELHI: The government is likely to drop the controversial clause in the draft Companies Law Act that empowered it to levy a cess on turnover of companies, which would then be utilised to revive sick industrial enterprises.

The Concept Paper on Companies Act ’04 empowers the central government to levy a turnover cess on all companies in India, including government-owned companies.

According to Section 140 of the Concept Paper, a cess is to be levied at a rate not less than 0.005% and not more than 0.1% of the value of annual turnover of every company or its annual gross receipt, whichever is more.

The amount collected is to be credited to the Consolidated Fund of India. At a subsequent date, the government proposes to transfer it to a separate fund, the Rehabilitation and Revival Fund, after deducting the cost of collection.

The fund is to be administered by the National Company Law Tribunal for the purpose of (a) making interim payment of workmen’s dues, pending the revival or rehabilitation of the sick industrial company; or (b) payment of workmen’s dues due to the workmen, referred to in sub-section (a) of Section 181, of the sick industrial company; or (c) protection of assets of sick industrial company; or (d) revival or rehabilitation of sick industrial company; which in the opinion of the Tribunal are necessary or expedient.

Any failure to pay cess is to be deemed as arrears. The Tribunal is authorised to recover it by imposing penalties of up to 10 times the amount in arrears on the defaulting companies. The proposals are opposed by chambers and industry associations. Assocham was most vociferous in its opposition.

Assocham president MK Sanghi argued that companies having a large turnover or gross receipts need not necessarily have surplus resources or liquidity to pay cess. The Companies Act is not a revenue generating act, argued the Chamber.

It suggested that instead the investor protection fund can be utilised for revival of sick companies. Sources say the government is now exploring alternatives to the cess for creation of the fund.